Endless Fiscal Cliff Talks: All Markets Down

Endless Fiscal Cliff Talks: All Markets Down

The market mood has turned negative as the Jan. 1st deadline approaches, yet the "fiscal cliff" talks between the President Obama and House Speaker Boehner is deteriorating. It is hard to believe that an agreement won't be achieved; however, the delay on the expected deal (whichever it is) is injecting extra stress and high volatility on the markets before the year-end holidays.

The Asian markets closed the day in the red area: Nikkei lost -0.99% and slipped under 10,000.00, Hang Seng and Shanghai composite indexes dropped by 0.82% and 0.69% respectively. The European futures and commodities followed the downside move while the volatility index, VIX, added 1.79%.

Yesterday, gold collapsed from 1,670.27 down to 1655.63 within a few minutes after the US released its quarterly GDP at 3.1% (more than 10% better than the anticipated 2.8%) and the quarterly core PCE (unchanged at 1.1%). Gold is now trading at 1,644.50, at its lowest levels since mid-August. The US index futures (which dropped from their highest levels since mid-Oct. over the deterioration on "fiscal cliff" talks) showed little reaction to data and remained focused on budget negotiations. The S&P500 opened the day insignificantly higher at 1,437.08, hit 1,432.82, and closed at 1,443.69.The Brent crude also made a sharp downside move from the last two-week-highs (around 110.50 levels) down to 109.40 amid fears on the world's biggest economy's future.

"The GDP number was better than forecast, so the thinking is that improving conditions in the economy might mean a light at the end of the tunnel on when the Fed will end QE3" said a senior commodity broker in Chicago.Despite the encouraging data, if the US leaders do not manage to avoid the fiscal cliff, the US will be facing a deep recession.